Mexico prepares for (Ford) Fiesta

Ford Motor Co., in a struggle to regain profitability, will build its new Fiesta subcompact at a factory near Mexico City for sale in the US.

It is a blow to Detroit.

But for Mexico, Friday's announcement – which has been heralded as the largest manufacturing investment in the country's history – is a decisive feat.

President Felipe Calderón called the $3 billion deal a "turning point."

While the US automaking industry sags – undergoing massive restructuring and downsizing – Mexico's production has expanded, especially for small, low-cost vehicles. Last year, Mexico produced a record number – over 2 million – and analysts forecast that by the year 2015 production could at least double.

A US recession is bound to affect the Mexican car industry, where the majority rolled out head north for export. But amid high gas prices that are fueling the market for smaller cars, Mexico could position itself as a center for fuel-efficient vehicles – a pivotal development after years of shedding manufacturing jobs to China and beyond.

"Asia is where all the growth is. But now all of a sudden Mexico is looking pretty good again," says Greg Gardner, an analyst at the consulting firm Oliver Wyman in Troy, Michigan. While China offers automakers lower wages than Mexico, he says that the gap is shrinking. Plus, he adds, Mexico is closer to the US and has experience in automaking. "In the past two years, Mexico has really rebounded."

The launching of the Fiesta subcompact, to be available for export to the US in 2010, is part of Ford's effort to tap a new market, after truck sales have slowed. Ford intends to transform its plant near Mexico City, in Cuautitlan, to replace pickup truck production with the fuel-efficient Fiesta. It will also revamp two other plants in the country.

Ford announced last week it would not meet its goal of being profitable by 2009, dealing a setback to the United Auto Workers union, which had renegotiated contracts in an effort to save jobs in Detroit. Buyouts are expected.

Here in Mexico, the investment is expected to create 4,500 direct jobs and 25,000 others. Mr. Calderón said Friday that the country wants to reposition itself as a leader in car manufacturing. "We want Mexico to be an automotive country, one that is competitive and with the most advantages so that the worldwide automotive industry will establish itself here."

The announcement comes as the other major automakers, including General Motors, DaimlerChrysler, Nissan, and Volkswagen have laid down massive investment plans in Mexico, building new plants, expanding production, and rolling out new models.

Mexico's draw is geographic and economic. The average Mexican worker makes roughly one-sixth as much as the average American worker. And because the major industries have long had a presence here, it has an experienced labor pool and a slew of auto parts suppliers supporting the industry.

"Now and in the past, US manufacturers have been producing in Mexico because the quality is high and the labor market is very reliable," says Pascual Francisco, an automative analyst for Latin America at Global Insight, an economic forecasting firm headquartered in Waltham, Mass.

In the past year, Mexico has also drawn interest from much farther away. In November, China's First Automobile Works Group (FAW) caused a stir when it announced it would be partnering with Mexican electronics retailer Grupo Elektra to build China's first automaking plant in Mexico, expected to be up and running by 2010.

Their goal, according to Group Elektra, is to tap into the growing number of middle-class Mexicans who can afford small cars. But their sights might be on the US. "By bringing those vehicles into Mexico, Mexico can be used as a testing ground for the US market," says Mr. Francisco.

Mexico currently exports about 75 percent of the cars it makes, most of those to the US. And many say that growth here cannot exist without growth north of the border. "We are an appendix of the North American market," says Huberto Juarez Nunez, an auto industry expert at the University of Puebla in Mexico.

So as concerns about the cooling US economy grow, any investment is good news, he says. But Mexico's industry needs to mature, too, he says, adding that the fact that China will be making its own car here, while Mexico, after years working with the US industry, has not yet, underscores the point. "After decades of presence of the major automakers, we still have no possibility to export a car called 'Pancho,' " he says. "The Chinese have achieved this."

• Wire services were used in this report.